Negotiable instruments act for Banking profession2

1. PAYMENT OF CHEQUES

2. Paying Banker
Duties And Responsibilities
Sec.31
• The drawee of a cheque having sufficient
funds of the drawer in his hands; properly
applicable to the payment of such cheque
must pay the cheque when duly required so
to do, and in default of such payment, must
compensate the drawer for any loss or
damage caused by such default

3. Payment Of Cheques
• Sec.126 Where a cheque is crossed
generally, it should be paid to a banker
only and Where a cheque is crossed
specially, it should be paid to the banker
to whom it is crossed
• Sec.127Where a cheque is crossed
specially to more than one banker,except
an agent for collection, the banker on
whom it is drawn shall refuse payment
thereof

4. Payment Of Cheques
• Sec.129 Any banker paying a cheque
crossed generally otherwise than to a
banker or a cheque crossed specially
otherwise than to the banker to
whom the same is crossed, shall be
liable to the true owner of the
cheque for any loss he may sustain
owing to the cheque having been so
paid.

5. Precautions To Be Taken While
Making Payment Of Cheques
1. Open or Cross Cheque (Sec.126)
2. Special Crossing to more than one Bank
(Sec.127)
3. Payment other than to a Banker, if cross
generally or specially, the paying banker is
liable to the true owner of the cheque (Sec.129)
4. Payment at the Branch where the account
stands
5. Payment within Banking Hours

6. Precautions (contd..)
6. Mutilated cheques. If accidentally torn, in the
hands of drawer he should confirm the same.
If it torn in the hands of payee/endorsee to be
confirmed by drawer/collecting banker
7. Correctness of Form
8. Post-dated SHOULD NOT BE PAID:
a. Stop Payment before due date
b. May result wrongful dishonour of subsequent
cheques
c. Drawer may become insolvent, insane
d. Encashment, holding till due date, and
discounting of post dated cheque is a fraud in
banking practice

7. Precautions (contd..)
9. Stale Cheque: Outstanding more than 6
months. Drawer has to revalidate.
10. Amount in words and figures: Sec.18
says amount in words is to be paid.
11.Material Alteration-
Cheques which do not appear to have
been so altered Protection under Sec.89
available to the paying banker, if
payment is made in due course

8. Precautions (contd..)
12. Computation of Balance
13. Endorsement and Identification of holders of
bearer cheques:
14. Once a Bearer always a Bearer: (sec.85)
15. Endorsement in blank
16. Endorsement of order cheque – Identification
of payee/endorsee is required
17. Forged Signature: There should not be any
grounds of contributory negligence on the
part of customer also

9. “Payment in Due Course”
(Sec.10)
• Paying banker get protection under sections
31, 85, 85A, 87, 126 to 130, only if payment is
made in due course.
• “Payment in due course means payment in
accordance with the apparent tenor of the
instrument in good faith and without negligence
to any person in possession thereof under
circumstances which do not afford a reasonable
ground for believing that he is not entitled to
receive payment of the amount therein
mentioned” (Sec.10)

10. Payment to Holder or
Holder-in-due Course
• If payment is stopped by drawer, inspite of
possessing a cheque, the holder is not
entitled for payment.
• Payment of such cheque does not give
protection to the Banker under Section 10.

11. Collecting Banker
Duties And Responsibilities
• Sec.131: A Banker who has in good faith
and without negligence received payment
for a customer of a cheque crossed
generally or specially to himself shall not, in
case the title to the cheque proves defective,
incur any liability to the true owner of the
cheque by reason only of having received
such payment

12. Collecting Banker Duties And
Responsibilities (contd)
• Opening of the account by its customer
properly introduced
• Satisfactory conduct of the operations in the
account
• The endorsement leading to collection of
the instrument – anything suspicious

13. CONVERSION
• Conversion is the unlawful taking, using,
disposing or destroying of goods, which is
inconsistent with the owner’s right of
possession. Even an agent may be held
liable for conversion.

14. Payment of Cheques
(Some Legal Decisions)
• Issue of cheque: Drawer’s liability
commences with the issue of cheque with
constructive or actual delivery of the
instrument
• Cheque lost in transit: In case the cheque
is lost in transit, the loss would devolve on
the drawer, as the post office being regarded
as the agent of the drawer

15. Payment of Cheques
(Some Legal Decisions)
• Stolen Cheque: If a cheque is lost in transit and
should a thief encash it, the paying banker
paying a cheque according to its tenor in the
ordinary course of his business would not be
held liable for negligence
• Position of True Owner: The true owner of a
stolen cheque, which has reached the hands of a
holder in due course, will not be able to obtain
payment thereon and will also lose his remedy
against prior parties

16. BOUNCING OF CHEQUES
(Sec.138)
• Introduced in 1988
• Further amended in 2002 effective from
17.12.02

17. BOUNCING OF CHEQUES
(Sec.138)
• Punishment with imprisonment upto 2years or
fine upto twice the amount of the cheque or
both: (Sec. 138) (w.e.f. 6.2.2003)
• Conditions:
• Cheque is drawn on account with the bank
• Cheque is issued for discharge of whole or part
of liability or of any debt
• Cheque is returned for insufficiency of funds
• Cheque is presented within the validity

18. BOUNCING OF CHEQUES
(Sec.138)
• Payee/holder-in-due course makes a
demand on drawer within 30 days from the
date of receipt of intimation from Banker
• Drawer fails to pay the amount within 15
days of receipt of notice
• This section does not provide for making
payment to the payee or the holder in due
course

19. Check Your Progress
• A banker on whom a cheque is drawn by the
customer is – a) Collecting Banker, b) Paying
Banker, c) Advising Banker`
• A banker who collects a cheque for and on
behalf of his customer is a) Collecting Banker,
b) Paying Banker, c) Advising Banker
• Section 131 of NI act extends protection to the
a) Collecting Banker, b) Paying Banker, c)
Advising Banker

20. Check Your Progress
• Section 85 of NI act extends protection to the a)
Collecting Banker, b) Paying Banker, c)
Advising Banker
• When a banker makes payment of a cheque
after banking hour he will be held a) liable; b)
reasonable; c) acceptable
• One of the conditions to honour the cheque by
the paying banker is that amount in words and
figures should a) differ; b) tally; c) be clear

21. Check Your Progress
• Where a customer by a letter has advised the
bank directing the banker not to honour/pay a
particular cheque such a letter is called a) letter
of authority; b) letter of credit; c) stop payment
letter;
• Where a customer has issued a cheque date of
which is yet to come, such a cheque is called a)
Stale cheque; b) post dated cheque; c) crossed
cheque

22. Check Your Progress
• When a bank pays a cheque according to the
apparent tenor, in good faith and without negligence
and without having reason to doubt the bonafide of
the presenter such a payment is a) wrong payment;
b) late payment; c) payment in due course
• To get the protection under sec.131 a collecting bank
has to collect a ________cheque for credit to his
customer a) Stolen; b) Stale; c) Crossed
• Where the signature of the drawer of a cheque is not
genuine, such cheque is called a) Post dated cheque;
b) Forged cheque; c) Clearing cheque

23. Check Your Progress
• Payment of cheque must be made by the
banker within banking hours. True/False
• Payment of a postdated cheque by a banker
is in order. True/False
• A bearer cheque is always payable to
bearer. True/False
• Payment of a cheque at a branch other than
the branch where the account of the
customer is kept is in order. True/False

24. Check Your Progress
• Stopped payment cheques should be paid by the
banker. True/False
• A forged cheque is a valid cheque. True/False
• The true owner of a cheque will be entitled for
payment notwithstanding, the cheque has been lost
and it has reached the hands of hold in due course.
True/False
• Where a person has lost an article and if the article
comes in possession of a bonafide purchaser the
bonafide purchaser will not be entitled to the
article. True/False

25. T h a n k Y o u